Jefferies’ Take on Chesapeake Energy Corporation (CHK); Raises Price Target to $4.00

Analyst Jon Wolff of brokerage firm Jefferies gave his update on Chesapeake Energy Corporation (NYSE:CHK) following its second-quarter earnings report. Wolff states that the report had “mixed results, but going concern risk mitigated.”

CHK reported EPS of ($0.14) compared to consensus of ($0.11). On the other hand CHK’s total production of 657.1 Mboe/d beat expectations of 640 Mboe/d. This beat was credited to lower margin NGLs at 76.9 Mb/d. Although CHK’s total production was better than expected, its oil volumes of 87.9 Mb/d were down 11% QoQ. This decline in oil output led Chesapeake to keep its three rigs in Eagle Ford running.

Chesapeake released its 2017 production guidance but the guidance lacked a spending plan. CHK predicts total production fall 5%. Nonetheless, CHK’s oil and total production estimates were higher than Wolff’s estimates. CHK also released its capital expense budget for FY16 and it was reaffirmed at $1-$1.5 billion. CHK did note that “it would likely spend at the high-end of the range.”

The analyst’s biggest concern moving forward is CHK’s debt and liquidity. The company currently has just under $2 billion in debt/converts that are due in 2017/18.

Additionally, Chesapeake increased its 2016 asset sale estimates to $2 billion from $1.2-$1.7 billion. Chesapeake is now selling part of its Haynesville acreage, but Wolff believes investors “may have been disappointed with no mention of CHK selling Barnett, which had been rumored in the press last month.”

Wolff is maintaining an Underperform rating, while raising his price target to $4.00 (from $3.00), marking a 18% decline in current prices.

According to TipRanks, the analyst has a yearly average return of 0.5% and a 70% success rate. The analyst has a 9.6% average return when recommending CHK, and is ranked #2,174 out of 4,101 analysts.

TipRanks shows that out of the 9 analysts who rated CHK in the last 3 months, 22% gave a Buy rating, 45% gave a Hold rating and 33% gave a Sell rating. The average 12-month price target for the stock is $4.75, marking a 2.86% downside from current levels.

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